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  • Oct 29, 2014
  • Updated: 7:38am

The race is on among economies to foster a culture of creation

PUBLISHED : Saturday, 12 May, 2012, 12:00am
UPDATED : Saturday, 12 May, 2012, 12:00am

As companies and countries alike search for the next path to growth, their leaders cannot get away from the challenge of innovation. Everyone is looking for the genius innovator, or that killer application or product that would rocket them to the top of the league. Find a Steve Jobs and your country's wealth could increase by US$600billion - that's the market capitalisation of Apple, roughly the annual gross domestic product of Switzerland.

There are two mainstream views of innovation, both attributed to the economist Joseph Schumpeter. Drawing on his explanation of the Industrial Revolution, he argued that economic growth is driven by innovation created by entrepreneurs who combine technical or scientific knowledge with business models.

His view of innovation changed when he moved to Harvard in the 1930s. After witnessing the power of large corporations, he argued that only these institutions have the scale and resources to operate large research laboratories and then take new ideas to the market place.

Based on this lab-to-market model of innovation, many countries began to spend money on basic research, technology parks and, more recently, incorporating market need as a national strategy.

But in a recent book, Innovation Reinvented: Six Games that Drive Growth, Canadian management consultants Roger Miller and Marcel Cote argue that it is market conditions, not research and development, that shape innovations. They classify products and markets into six groups, arguing that each calls for different innovation strategies.

The first is the 'eureka' product, a new, exciting product defended through patents and brands.

The second evolved from network competition in the telecommunications business. Networks have a 'winner takes all' characteristic. This battle is today being fought in the smartphone industry - whoever wins with the hardware (like the iPhone) also wins with the software, and thus the entire war. The authors call this the 'battle of architecture'.

The third class of product innovation comes when a demanding customer induces an expert firm to master a specific technology, hence creating a 'system breakthrough'. This typically comes from the collaboration between two different producers, such as Toyota adopting aircraft design technology and skills from French aircraft manufacturer Dassault.

The fourth class is often found among consumer products. Innovation is undertaken by large firms with established products that they need to continually upgrade in order to differentiate themselves.

Next are products by business giants that are 'customised' for the mass market. Such mass customisation is not a single-product innovation, but a business model. It calls for the smart use of technology that increasingly enters the mass market through social media and new information technology tools.

Last but not least, major players innovate by 'pushing the envelope', where they assemble the best experts, technology and platforms to change their competitive edge. This is where governments can play a driving role.

How should governments think about promoting innovation in our economy and business? Miller and Cote suggest six broad public policy considerations.

The first is to create new industries through new market games, by fostering a positive environment for local entrepreneurs to succeed. This includes supporting start-ups in budding markets; protecting intellectual property rights; and helping businesses transfer new ideas into commercial innovations.

The second is to develop a pool of technical and managerial talent which fast-growing firms can tap to plan new market games. We need better engagement and interaction between research-oriented universities and innovative firms. There are almost no walls between Stanford, Caltech and Silicon Valley. In simple ABC terms, Academia must learn how to co-operate with Business and the Civil Service towards supplying both talent and ideas, and generating applied innovation. Too often, they don't talk to one another.

Thirdly, competition laws shape the 'battles of architecture'. There are complex coalitions of concentrated market power that could turn oligopolistic.

Fourthly, government sponsorship of 'system breakthrough' projects works well when the research helps generate significant commercial innovation.

Fifth, governments can help firms 'push the envelope' by investing in infrastructure, so local firms develop skills to compete at the global level.

Finally, public policies should nurture a competitive business environment that values continuous innovation as a way of life.

All these sound familiar, but are very hard to achieve. Many technology parks often end up as property plays. Innovation guru John Seely Brown argues that innovation is often institutional, where bright individuals and organisations come together and collaborate in evolving networks of creation. They learn, copy, build and compete with each other until something new evolves. In short, they game each other.

How to foster creation nets in each social environment is clearly the game that is being played in many emerging markets today.

Andrew Sheng is president of the Fung Global Institute

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